Starting a company? Good luck – Venture funding drops in Q3

Startups have had a bit more to be hopeful about with the U.S. economy seeming to be on the upswing. But investors are not proving as cheerful through the first three quarters of 2012, as venture capital dropped once again in the third quarter, according to The Associated Press.

The latest numbers from MoneyTree, the quarterly study put out by consulting group PricewaterhouseCoopers and the National Venture Capital Association, show that venture capital funding fell to only $6.49 billion in the third quarter.

That amounts to a nearly 12 percent drop from the second quarter, when funding reached $7.34 billion, and it came on a significantly smaller number of deals as well. Total deals dropped from 992 in the second quarter to only 890 in the past three months.

While the third quarter still ranks above the first quarter of the year, when venture funds distributed only $6.17 billion, the past nine months saw venture funding fall roughly 10 percent from the same period last year.

“The decline in funding for Seed/Early stage companies is firmly in place – we’ve seen a drop in dollars and deals both quarter-over-quarter and year-over-year,” said Tracy Lefteroff, global managing partner of the venture capital practice at PwC US.

The most successful industries for keeping investments going have been in IT and biotech, but even biotech has suddenly had difficulty drumming up interest in new businesses as opposed to older, existing investments.

“We’re seeing fewer new venture funds being raised which means less capital is available for new investments,” explained Lefteroff. “And, we’re seeing venture capitalists be very cautious with the capital that is available due to the lack of a significant number of liquidity events. Instead, venture capitalists are continuing to support the companies already in their portfolio.”

Forbes notes that there have even been some big deals in the past quarter, including $200 million for electronic payments company Square and $125 million for cloud services firm Box. But the investment market beyond electronic industries has looked fairly bleak.

One of the biggest losers was also one of the most prominent fields today – clean technology. Many investors have started to shy away from the area with growing uncertainty about these industries in advance of next month’s presidential election.

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